Saturday, October 06, 2012

SANTIAGO — On October 5, 1988, after a 16 years military dictatorship, a national referendum was held to determine whether or not General Augusto Pinochet would extend his rule for another eight-year term in office. The “No” side won with just under 56 percent of the vote, and Pinochet stepped down. To celebrate the anniversary of the return to democracy, a number of left-wing government ministers organized a memorial rally at Plaza Rosales earlier today.Unfortunately, the commemoration quickly ended, turning into another violent student action. Students from the Internado Nacional Barros Arana (INBA) infiltrated the rally and began sewing chaos, taking out their aggression on representatives of the Communist Party (PC), the Democracia Cristiana (DC), the PPD, and the Socialist Party (PS). The students were struggling against politics in general and against a perceived lack of changes since the end of the dictatorship. The representatives immediately left the place, no one was injured.Despite the incident, left-wing representatives maintained their desire for unity and better democracy for the next municipal and presidential elections. (my emphasis)
Those who sew chaos will end up wearing ripped shirts! Or I think that's how it goes. "Struggling against politics in general"? Excellent. Nos miramos, nos gustamos, y nos besamos!

If you want to understand Chilean protest groups, you'll need to (re)watch this from Life of Brian... (with Spanish subtitles, just in case) (UPDATE: As Otto points out in comments, that would PORTUGUESE subtitles to anyone except an idiot....mea culpa!)

The agreement that all will fight authorities for the symbolic, but admittedly non-existent, right of men to have babies captures perfectly the sensibilities of the Chilean student left. And then the "splitters" thing. Nice.

Surprising pretty much no one, Montana was told that it cannot make its own separate campaign finance laws. "First Amendment Incorporation" is a b***h, I suppose. Almost all US campaign finance law is simply an attempt to shield incumbents, who are ALREADY CORRUPT, from the scolding winds of scrutiny and competition.

As CCP's Brad Smith put it:

“Few serious people really think that
Montana’s limit - a total contribution of $160 to a state senator’s
campaign committee over his four years in office - is going to corrupt
anybody," said CCP
founder and Chairman Brad Smith. "It is clear that the purpose of the
many contribution limits is not to prevent corruption or its appearance,
but to smother speech. We’re pleased to see a district court take the
Supreme Court’s admonition in Buckley
and Randall seriously. The state’s and the federal government
cannot just assert an anti-corruption interest – their limits have to be
actually tailored to address a real problem.”For more....

Friday, October 05, 2012

Let's start with the Establishment Survey which reports 114,000 net new non-farm jobs in September.

That's a bad number.

But, revisions to July and August have raised job creation in those months by 86,000 ("The change in total nonfarm payroll employment for July was revised from
+141,000 to +181,000, and the change for August was revised from +96,000 to
+142,000").

Those are decent numbers.

But, as you may have seen, the blockbuster number is that the unemployment rate fell to 7.8%. And, this did not happen because people left the labor force. Labor force participation was "little changed".

You may ask, if it takes more than 150,000 net new jobs to lower unemployment unless people leave the labor force, and we had 114,000 jobs and no decline in labor force participation, how did unemployment fall .3 percentage points?

Well, unemployment is calculated from the Household Survey, which is separate from the Establishment survey and it (Household) reports that, "total employment rose by 873,000 in September", which is what caused the drop in the unemployment rate.

Obviously, 114,000 is pretty different than 873,000, even allowing for the sampling errors in the surveys. Why the big difference?

Is that because there were 760,000 new farm jobs? Technically it could be, but probably not.

Since 2002, the two series track each other closely, though the household survey (the blue line) has been getting further and further away from the establishment survey (the red line):

The biggest difference between the dynamics of the two is that the household survey is way more volatile. Here I've graphed the growth rates of the two and you can see the difference (the household survey is the blue line, the establishment survey is the red line).

This month, one of the two jobs numbers is an outlier. If recent patterns hold, either the establishment survey number will get revised up or the household survey number will reverse itself in the next month (or some combination of the two).

While the household number is fantastic news for the economy, we need to realize that it might not last, given the high volatility of the dynamics of that survey.

The longer answer can be found in these charts which were released on September 13th, the same day that QEIII was announced:

(you can clic for a slightly better image or refer to page two of the linked PDF)

The bottom panel shows that no one on the FOMC is predicting a surge in inflation from QEIII. The highest individual prediction in 2014 is 2.2% and in 2015 it's 2.3%. The "central tendencies" for those years are 1.8% - 2% in 2014 and 1.9% - 2% in 2015. You can read these numbers from the first table in the link provided above.

I just don't see that the Fed views their language in the QEIII statement or the minutes as seriously committing to higher than equilibrium (i.e. 2%) inflation in the future.

The FOMC is bullish on growth in 2014 and 2015 as can be seen from the top panel of the embedded chart, with a "central tendency" of their forecasts reported as 3.2% - 3.8%. Their long run forecast central tendency is 2.2% - 3%.

There is nothing in these forecasts that indicates the Fed expects NGDP to get back on anything resembling its pre-crash trend.

People, believe me when I tell you that I want the economy to recover. I want lots of new jobs created. I want there to be good times in America for all.

But I think people are projecting their own views onto Fed actions. The FOMC just isn't playing the game that the Woodfordians want them to play.

It's my view that it is impossible for the Fed to play and win the Woodfordian game, but I'd love to be proven wrong.

We are operating in an era where the Fed is using forward guidance to condition the public's expectation of future interest rates. Having already pushed the policy rate to zero, the Fed is now left with promising to keep it there in future periods.

An obvious question is, does this work? Or, in what class of models does this work?

Our experiments consider a fully anticipated and unconditional lowering of the monetary policy rate for a finite number of periods. We find that the workhorse Calvo (1983) models of time dependent pricing currently used for monetary policy analysis deliver unreasonably large responses of inflation and output in response to such a policy. Furthermore, if there are endogenous state variables, these models suggest that the initial responses can become arbitrarily large as the duration of the fixed rate regime approaches some critical value and then switch sign and become arbitrarily negative as this critical value is exceeded slightly. For empirically realistic models such as the Smets and Wouters (2007) model, the critical duration for which these asymptotes occur is around eight quarters - well within the duration of the low interest rate environment in the U.S. following the financial crisis.

So, either the promise is not credible, the models are wrong, or maybe both?

Let's be clear that is paper is not done by hacks. One of the authors is Tim Fuerst, and he is the real deal.

Anyway, back to the point. Here is a graph from a Bob Erikson book (reference here).

Horizontal axis Dem margin before debate; Vertical is Dem margin after debate. Remember that "important" 1960 debate, where Nixon looked so bad? Right on the 45 degree line. The only one where the debate seems to have mattered is 1976, where Ford lost the election by saying dumb stuff about Poland being free and independent. Meaning that Ford dropped like a rock after....wait. Carter dropped like a rock. CARTER dropped, going from +10 to basically even after the debate. Carter still won, of course. But it wasn't the debate. There is no example of a debate mattering.

Wednesday, October 03, 2012

So, I had never noticed this. Have used this thing for years, never saw this. When you are finished with using the projector system in the big auditorium (White Lecture Hall) on East Campus here at Duke, you get this confirmation screen. And I always just pressed "yes" at the bottom. But look at the choice in the middle:

the ADP report out this morning says there was a net gain of 162,000 jobs in September (PDF). Now that's all preliminary and maybe it won't hold up. But this—rather than long and variable lags—is what I'd expect to see from QE 3.

Wow. And I thought I was a QE bear!

Now Matt's overall point is that when (if) the Fed is playing the expectations game, we might expect to see things change quickly if they are successful rather than having to wait for a mechanical chain of events to slowly unwind over time.

I even agree that what our economy needs now is a jump from what Tyler calls the "low trust" state to a "high trust" state and that maybe Fed jawboning can help us make that jump.

But I have to question pointing to a slower rate of job growth as evidence that we are jumping.

In the category of communications policy, we also extended our estimate of how long we expect to keep the short-term interest rate at exceptionally low levels to at least mid-2015. That doesn't mean that we expect the economy to be weak through 2015. Rather, our message was that, so long as price stability is preserved, we will take care not to raise rates prematurely. Specifically, we expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens. We hope that, by clarifying our expectations about future policy, we can provide individuals, families, businesses, and financial markets greater confidence about the Federal Reserve's commitment to promoting a sustainable recovery and that, as a result, they will become more willing to invest, hire and spend.

So which is it?

"Rates will be exceptionally low til at least mid-2015. "

or"so long as price stability is preserved we will take care not to raise rates prematurely."

People, those are two very different guidances. Which (if either) did he actually mean and which is the dog whistle?

Well, since the first is a promise that Bernanke cannot actually keep (it's highly unlikely he'll be Fed chair in mid-2015), and the second is business as usual, I'd put my money on the second phrase as actually being closer to what will happen.

Then, he adds insult to injury with this gem: "We hope, by clarifying our expectations about future policy,...."

Not clarifying the path of future policy but his expectations about the path of future policy. Not that it will work, but that he hopes it will work.

Is Ben actually giving the middle finger to the expectations channel here? You wouldn't have to be a rabid Straussian to think so.

Monday, October 01, 2012

... humans are predisposed to
cooperation and generosity, and only become selfish when they take time
to think about the situation. The effect was robust, occurring both in
subjects recruited from AMT and in college students. Furthermore, a
meta-analysis of previously published work showed that this effect was
observed not only in the donation scenario described above, but also in
other social “games” (such as the prisoners’ dilemma) that are either
played just once or repeated multiple times.The researchers were even able to manipulate participants into being
either selfless or greedy, based on whether they were primed to think
about intuition or careful reasoning. Some participants were primed to
believe in their intuition by asking them to either write an essay about
a time in their life when their intuition was right, or when careful
reasoning was wrong. A second group, which had to write about when their
intuition led them astray or when careful reasoning proved helpful, was
primed to promote rationality. When asked to contribute money,
donations were much higher in the first, intuitively-primed group than
in the second group, which had been primed for rationality and
reflection.

Sunday, September 30, 2012

In his recent book "The Righteous Mind," Dr. Haidt confronted liberal
bafflement and made the case that conservatives are motivated by
morality just as liberals are, but also by a larger set of moral
"tastes"—loyalty, authority and sanctity, in addition to the liberal
tastes for compassion and fairness. Studies show that conservatives are
more conscientious and sensitive to disgust but less tolerant of change;
liberals are more empathic and open to new experiences.But ideology does not have to be
bipolar. It need not fall on a line from conservative to liberal. In a
recently published paper, Ravi Iyer from the University of Southern
California, together with Dr. Haidt and other researchers at the
data-collection platform YourMorals.org, dissect the personalities of
those who describe themselves as libertarian.These are people who often call
themselves economically conservative but socially liberal. They like
free societies as well as free markets, and they want the government to
get out of the bedroom as well as the boardroom. They don't see why, in
order to get a small-government president, they have to vote for
somebody who is keen on military spending and religion; or to get a
tolerant and compassionate society they have to vote for a large and
intrusive state.

The Sistine Chapel is not for the faint of heart. While some may swoon over the over the top artwork, others complain of heat, smells and pick-pockets.

The Italians are having a logic-free emotional debate about the situation. One guy calling to limit the "drunken herds" (5 million visitors a year), the other side saying that limiting the numbers or putting time limits on visits is unthinkable.

People, all they have to do is raise the price and things will sort themselves out, but that move is apparently not in the Italian tool box!

This would be even funnier if it weren't for the fact that the hordes and their effluvia may be damaging the artwork.

Oh well, if they don't man up and cut the crowds one way or another, I know exactly who they should get to try and restore the Chapel's artwork!